Reform the tax code-actually do it!

[RainyDay]

OK, I see your point now Orga. Your concern is not so much around transparency of where public money is spent, but transparency of policy decisions about where public money is to be spent.

I suspect (though I have no direct knowledge) that in the example you give about cutting dole for younger people, there would be policy papers prepared and reviewed in Dept Social Protection around a policy change like this. It would be great if these papers were published by default. If not, you could probably get your hands on them via FOI if you were so minded.

On the other example of VAT on cars vs VAT on food, I suspect there would be no policy papers existing that compare these two options, because no Minister ever had to make a choice between these two options.

 

[Nermal]

This discussion reminds me of a wise comment that Albert Reynolds made about the tax system during his time as Minister for Finance.

"Tax reform is a complex task requiring a balanced approach. The solutions are not always simple. Very often simplicity is the enemy of equity."
[broken link removed]

Reynolds also said once (I'm paraphrasing, and maybe not doing him full justice) "the only meaningful tax reform is tax reduction". Again, wise in its own way.

Speaking as someone trying to get to grips with a tax qualification at the moment, I have to laugh. The current monstrous structure is plainly result of continual tinkering by sectional interest with almost no attempts at reform.

Equity appear never to have been a consideration at all, or if so it was a long way behind getting nice things into the budget headlines and giving the government more levers to pull.

 

[Jim2007]

Surely allowances are simpler, and should be part of the reform. If you have a sales rep on the road 5 days a week, surely it is easier to have a fixed lunch allowance of €10 per day, rather than to be collecting receipts and taking away the pint of beer that he bought with his own money but is on the same receipt etc.

Well that is how it is here and in many of the other EU countries as well.

 

[Jim2007]

Yes, I'm aware of that. Jim's suggestion seemed to be a retrograde step to me, which is why I queried it.

That was not a suggestion! I was responding to Breadan's question as to why it took so much effort to do a tax return over here.

 

[Sophrosyne]

Are you looking at reform of all taxes or just income tax?
Might it be better to focus on one or two key areas where you think change could be effected?

 

[Orga]

I suspect (though I have no direct knowledge) that in the example you give about cutting dole for younger people, there would be policy papers prepared and reviewed in Dept Social Protection around a policy change like this. It would be great if these papers were published by default. If not, you could probably get your hands on them via FOI if you were so minded.

Rainyday, I understand where you're coming from - it makes perfect sense. Yes, I can access the policy papers under FOI, subject to the usual restrictions, and yes, it would be great if they were published by default. However, what would give us faith is that we know the decision has been well researched. While papers relating to deliberative process MAY be exempt from release under FOI, the practice is that they are not released because those involved do not want to see their thinking (or absence thereof) made public. But, the key issue is that the policy paper very often follows the political decision rather than engendering an open discussion which leads to policy formation. This is often the case because political parties form governments on the basis of a negotiated programme for government. In instances where there has been a change of government, the incoming government has no access to the ACTUAL figures other than rudimentary confirmation of figures by the Dept of Finance in advance of taking office. This, in addition to the negotiated nature of the policy programme means that policy decisions are not well-informed in very many cases.

In general, policy papers should set out the case for and against particular options. In practice policy papers only argue one option. See here for the policy paper on the changes to junior cycle education as one example: [broken link removed]

(I'm not engaging on whether the changes are a good idea or not - am just pointing out that policy tends to show just one option)

Where legislative changes are needed these are obliged to be accompanied by a document called a regulatory impact analysis. This analysis should set out the impacts of making the change, and of not making the change. In a significant number of instances the RIA is not done, and in almost all instances it contains a dreadfully poor level of analysis. This analysis is almost always centred on cost, as if no other principle matters, regardless of the actual nature of the legislation.

When one examines RIAs in detail, you can see that they provide two options exclusively:
1. Do nothing
2. Implement the change which is proposed

My argument is that if you were to put your investment in the hands of a broker who gave you just two options i.e. do not invest, or put it in just one specific fund, then it wouldn't be long before you started to get worried about your investment. But, here, the issues are more nebulous, things like quality of life, access to services and so on. There are no robust systems in place nationally to report widely on such issues. So, unlike the investment adviser example where you can see your money dwindle away in a very clear way, can you see how well or badly the social structures funded by the taxes you pay are improving or disimproving? Unfortunately, I think not.

For anyone interested in what an RIA is like here is a link to an RIA on the Harbour Act (2008):
[broken link removed]

In my view, this is a poor RIA and you will see that when you turn to the analysis of options on page 3 of 11. Most RIAs look like this. Note the wording that is used throughout: "view of" and terms which show that the opinion is already formed and set.

Lest I be accused of being overly negative, here is an RIA which is better. It's from the Department of the Environment and is about waste management:
http://www.environ.ie/en/Environment/RHLegislation/FileDownLoad,30784,en.pdf

When I say it is better, I mean that the quality of analysis is better than what you generally find. It doesn't mean that I believe the decisions reached are necessarily correct, wholly or in part. If I remember correctly this issue generated a lot of debate and the ESRI got involved as well (I may be "mis-membering")

Finally, here is a link to an EPA (US) RIA and you should notice that upfront it mentions social costs/effects as well as the economic costs. The issue the paper covers is that of reducing sulphur emissions. The quality of the analysis leaves our own analysis in the shade.
[broken link removed]

 

[Purple]

Superb post Orga.

 

[Sophrosyne]

Orga,

Your post is titled “Reform the tax code – actually do it!”

Therefore, you must think there is something wrong with the current tax code, regardless of how it was devised and of the transparency or otherwise of governmental analytics and decisions.

Can you set out, in points, what you think is wrong with the taxation system and specify which taxes you are looking to reform?

 

[Orga]

Orga,

Your post is titled “Reform the tax code – actually do it!”

Therefore, you must think there is something wrong with the current tax code, regardless of how it was devised and of the transparency or otherwise of governmental analytics and decisions.

Can you set out, in points, what you think is wrong with the taxation system and specify which taxes you are looking to reform?

You'll have read a number of such points already as part of this thread and I can provide a long list of points but this would defeat a lot of the purpose of reforming the tax system. That's because a piece-meal approach is not reform, a piece-meal approach is about refining, re-jigging, re-aligning. Changing individual points when the whole is sub-standard doesn't change the fundamental nature of the system.

We pay taxes so the State can provide services and infrastructure. Let's start there and design from the point of view of current and future needs for services and infrastructure. You see, that way you start to look at taxation in a sustainable way with a long-term orientation.

As a kid you may have had a piggy bank, though not many kids do these days. Yet, you often hear kids saying that they are saving for something by putting money away. The point is that by focusing on the purpose for the money there is a greater likelihood of its purpose being realised.

This is not so much, at least initially, about changing the technical rules, instead it's about changing how we think, and that's a lot more challenging than changing rules. That's because how we think decides how we act, how we see the world and the values we hold underpin the decisions we make. See a piece by Stephen Kinsella who has an article in the Indo about the failure to reform: http://www.independent.ie/opinion/c...4-a-chance-to-stop-a-new-bubble-29876240.html

I understand that to not answer the question you asked Sophrosyne is going to be seen as dodging the issue and I don't want that. Equally, I don't want the larger issue to be overwhelmed by smaller details. So, as an attempt to answer your question, here are some specific issues which I've picked at random (which in a reform would need to be looked at in an integrated way):

1. Recalculate the value and purpose of the PAYE tax credit for workers - it was introduced to compensate for time value of money due to differences between how self-employed pay tax and PAYE pay tax
2. Explain the rationale for the miserly increase in the tax exemption limit for those aged 65+ where they still have a dependent child, such as a disabled adult child
3. Provide a rationale for why expenses which are allowable and are paid for from post-tax income are only allowable at the marginal rate regardless of whether the taxpayer pays at the higher rate
4. Simplify the calculation of PRSI and the range of classes - are there really different classes of citizen in the State?
5. USC, PRSI and various deductions...prize for anyone who can convincingly explain the real difference in purpose (not collection) of USC and PRSI

 

[Sophrosyne]

Don't forget interest payable on national debt. I read somewhere that this soaks up 20% (open to correction) of taxes raised.

 

[RainyDay]

But, the key issue is that the policy paper very often follows the political decision rather than engendering an open discussion which leads to policy formation. This is often the case because political parties form governments on the basis of a negotiated programme for government. In instances where there has been a change of government, the incoming government has no access to the ACTUAL figures other than rudimentary confirmation of figures by the Dept of Finance in advance of taking office. This, in addition to the negotiated nature of the policy programme means that policy decisions are not well-informed in very many cases.

Yes, I can see the issue here, though I’m not sure about practical solutions. Political parties really don’t have access to the depth of resources needed to produce the depth of analysis you propose, unless or until they get into Government. Take Universal Health Insurance for example – both Labour and FG had UHI as their preferred health funding policy prior to getting into Govt. They have both had the policy for some time, in Labour’s case, back to before the 2007 general election or earlier. So it automatically came into the joint Programme for Government.
When the two parties came together in Government, they put together a dedicated unit in Dept Health to progress it, and put together an implementation group of relevant experts; [broken link removed]. I understand that that group are working towards a ‘white paper’ to show how this policy could be implemented. I also understand that the emerging research from Netherlands and Germany suggests that the jury is very much still out on UHI.
But there is just no realistic possibility that either individual party would have the resources to undertake this kind of detailed examination out of Government. And I don’t think it would be fair to lambaste either party for setting UHI as their target objective, based on the evidence that was available at that time.

In general, policy papers should set out the case for and against particular options. In practice policy papers only argue one option. See here for the policy paper on the changes to junior cycle education as one example: [broken link removed]

(I'm not engaging on whether the changes are a good idea or not - am just pointing out that policy tends to show just one option)

Where legislative changes are needed these are obliged to be accompanied by a document called a regulatory impact analysis. This analysis should set out the impacts of making the change, and of not making the change. In a significant number of instances the RIA is not done, and in almost all instances it contains a dreadfully poor level of analysis. This analysis is almost always centred on cost, as if no other principle matters, regardless of the actual nature of the legislation.

When one examines RIAs in detail, you can see that they provide two options exclusively:
1. Do nothing
2. Implement the change which is proposed
My argument is that if you were to put your investment in the hands of a broker who gave you just two options i.e. do not invest, or put it in just one specific fund, then it wouldn't be long before you started to get worried about your investment. But, here, the issues are more nebulous, things like quality of life, access to services and so on. There are no robust systems in place nationally to report widely on such issues. So, unlike the investment adviser example where you can see your money dwindle away in a very clear way, can you see how well or badly the social structures funded by the taxes you pay are improving or disimproving? Unfortunately, I think not.

Yes, I can see the importance of taking a broader view, rather than just the two options. However, this is also not trivial to solve. In almost every policy scenario, there are an almost unlimited set of policy options available. And for each of those policy options, there are an almost unlimited set of policy options for inter-related policies, each of which will have impacts of the outcomes of this policy. So where does the analysis start and end?
And by the way, as soon as the Minister mentions that this analysis is taking place, you’ll have VinB or Hooky or Pat Kenny or Ivan Yates taking deep sighs and telling the Minister that the dogs on the streets (or on AAM) know what the solution is so why doesn’t he just rush ahead and do something?

For anyone interested in what an RIA is like here is a link to an RIA on the Harbour Act (2008):
[broken link removed]

In my view, this is a poor RIA and you will see that when you turn to the analysis of options on page 3 of 11. Most RIAs look like this. Note the wording that is used throughout: "view of" and terms which show that the opinion is already formed and set.

Lest I be accused of being overly negative, here is an RIA which is better. It's from the Department of the Environment and is about waste management:
http://www.environ.ie/en/Environment/RHLegislation/FileDownLoad,30784,en.pdf

When I say it is better, I mean that the quality of analysis is better than what you generally find. It doesn't mean that I believe the decisions reached are necessarily correct, wholly or in part. If I remember correctly this issue generated a lot of debate and the ESRI got involved as well (I may be "mis-membering")
Finally, here is a link to an EPA (US) RIA and you should notice that upfront it mentions social costs/effects as well as the economic costs. The issue the paper covers is that of reducing sulphur emissions. The quality of the analysis leaves our own analysis in the shade.
[broken link removed]

Interesting examples there, and it does seem like the Harbours one was particularly skimpy. There may be questions about what stage in policy development the RIA occurs. If it is done as a tick-boxing exercise before the final legislation is passed by Cabinet, it is probably not a valuable support to the policy development process.
You might be a bit unfair to the Irish guys about the lack of social costs/effects, as I know some of this analysis is done outside of the RIA. This is definitely the case for papers going to Cabinet.

 

[Purple]

You might be a bit unfair to the Irish guys about the lack of social costs/effects, as I know some of this analysis is done outside of the RIA. This is definitely the case for papers going to Cabinet.

Are these papers available on-line or without a FOI request?

 

[Orga]

You have a good point RainyDay about the capacity to undertake analysis. What your point shows, I believe, is two things:

1. the analysis existing in the system i.e. the civil service analysis needs to be made available
2. the analysis which outside agents undertake needs to be leveraged, and yes, many of them have a lobbying bias, but still this analysis has utility

I wish that I could find the piece to link to it, but I recall an interview with an economist who commented that when in opposition, politicians were beating a path to his door for his views and analysis. But, once they got into government they didn't want to hear anything he had to say and they ignored him and others in the same situation. That's not an unusual situation. There's a very small circle and very strong sense of groupthink.

You're also right that I'm hard on our own, as you call them, "Irish guys". Yes, things are better than they were 10, 15 years ago - if you want to be appalled just look for various papers that went to Cabinet in that period (or even worse, things you would expect would have gone to Cabinet and didn't). You might be interested to read the analysis which was undertaken for a range of policies which were announced in those times - maybe you already have an insight in this areas, your posts would suggest it. The most interesting part would be the date on the advisory memo, which was, in many instances after the policy announcement. It's probably the lateness and the length of day which may be affecting my memory, but didn't a (Labour?) minister make a policy announcement on radio/tv (Morning Ireland?) I think earlier this year where he said that he was announcing something that he didn't intend to announce....I'm just confused by that...

Yes, Purple, the papers are available under FOI. However, the issue is that they are usually not released because the Departments consider them to be part of deliberative process, which is, in my view, not in keeping with how the Acts should be interpreted, and which constitutes grounds for refusal of access.

 

[RainyDay]

You have a good point RainyDay about the capacity to undertake analysis. What your point shows, I believe, is two things:

1. the analysis existing in the system i.e. the civil service analysis needs to be made available
2. the analysis which outside agents undertake needs to be leveraged, and yes, many of them have a lobbying bias, but still this analysis has utility

Fully agree with this.